The difference between a top up and accessing my equity by refinancing

Are you looking to renovate your home? Or maybe you’d like to free up a bit of cash to put towards an investment property. If you’ve got an existing home loan, you might be able to use your mortgage to tap into your equity. With that said, there are a couple of ways you can go about it. Top ups and refinancing are two options for getting your hands on a bit of extra cash. Here’s how they work.

What is a home loan top up?

A home loan top up or increase allows you to borrow more against the equity you’ve built up in your current property. The amount you can increase your home loan by depends on how much equity you have as well as your current financial situation.

It’s essentially a way to access extra credit without having to apply for a separate home loan or refinance your mortgage. But remember, with extra credit comes larger mortgage repayments, so it’s important to make sure you can afford to service a larger home loan before topping up.

Benefits of a top up

A home loan top up is a great way to free up a bit of extra cash, but that’s not the only advantage that home loan top ups offer.

• Access additional funds: A top-up loan allows you to access additional funds on top of your existing home loan. This can come in handy for a number of purposes like renovations, home improvements, investing in property, consolidating debts or funding other significant expenses like education or medical bills.
• Convenience: Since a top-up loan is an extension of the existing home loan, it offers convenience in terms of paperwork and processing. You don't need to go through a separate application process or provide extensive documentation as you would for a new loan. This can save time and effort, making the borrowing process smoother and more straightforward. With that said, some lenders charge establishment fees for increasing your home loan.
• Maintain existing loan terms: By opting for a top-up loan instead of refinancing, you can maintain the terms and conditions of your existing home loan, including the loan term and interest rate. This can be a bonus if you’re happy with the current loan terms or if the cost of refinancing is too much to justify.

What is refinancing?

Refinancing is another way you can access the equity in your home. Unlike a home loan top up, refinancing involves taking out an entirely new mortgage to replace your existing home loan. You can refinance your home loan with the same lender or switch to a completely different lender.

Many borrowers choose to refinance their home loan to save on interest rates and mortgage repayments, but refinancing can also allow you to access the equity in your home loan at the same time.

Benefits of refinancing

Beyond providing a way to access the equity in your home loan, refinancing also offers a range of other benefits, including:

• Lower interest rates: One of the main reasons borrowers refinance their home loans is to secure a lower interest rate. By refinancing to a loan with a lower interest rate, you can potentially save thousands of dollars over the life of the loan in reduced interest payments.
• Reduced repayments: Lowering the interest rate through refinancing can also result in reduced monthly repayments. This can free up cash flow for other purposes or allow you to pay off your loan faster by maintaining the same repayment amount as before.
• Access to new loan features and facilities: When you refinance your home loan, you have the opportunity to switch to a new loan with different features and facilities that better suit your needs. For example, you might choose a loan with a redraw facility, offset account or the ability to make extra repayments without penalties.
• Flexible loan terms: Refinancing provides an opportunity to change loan terms, such as the loan term length. You might choose to refinance to a shorter loan term to pay off your mortgage sooner or extend the term to reduce monthly repayments.

Top ups vs refinancing: which is better?

Both home loan top ups and refinancing allow you to take advantage of the equity in your home loan so you can free up a bit of extra cash. Home loan top ups are ideal if you’re happy with your current home loan. Plus, because you’re sticking with the same lender, there’s no need to foot the bill for any of those costs that come with refinancing, like exit fees, application fees and settlement fees. You just might need to put a bit of cash aside for an establishment fee depending on your lender.

Alternatively, if you’d also like to secure a lower interest rate or access different features and facilities while tapping into your home equity, refinancing could be the way to go. That way, you can find a new loan that better suits your needs and financial goals. But remember, you’ll need to decide whether the cost of refinancing is worth it.

Regardless of whether you decide on a top up or refinancing, if you’re planning on borrowing more than 80% of the loan-to-value ratio (LVR), you could be hit with lender’s mortgage insurance (LMI).

At the end of the day, the choice between a top-up loan and refinancing depends on several important factors, like the amount of additional funds needed, current interest rates, loan features, costs and your long-term financial goals.

Check out what it’s like to refinance with us. From competitive interest rates, our no fee promise and an annual discount to boot, there’s plenty to love about an Unloan home loan.

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Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.

Applications are subject to credit approval; satisfactory security and you must have a minimum 10% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000.

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

There are no fees from Unloan. However, there are some mandatory Government costs depending on your state when switching your home loan. For convenience, Unloan adds this amount to the loan balance on settlement.